March 30, 2017
While there were some critics of FirstNet’s lack of transparency, everybody seemed to know that AT&T was going to win the 25-year contract to build, deploy, operate and maintain the Nationwide Public Safety Broadband Network, which was first envisioned in the grief-filled days following the terrorist attacks on Sept. 11, 2001.
AT&T will receive 20 megahertz of 700 MHz spectrum and $6.5 billion and will spend about $40 billion over the life of the contract the network, which is expected to begin later this year and create as many as 10,000 jobs during the next two years.
“This is the release we have been waiting for,” Wells Fargo Analyst Jennifer Fritzsche wrote. “We believe $40B is a nice headline number, and is likely higher than expectations, though the exact mix breakdown (i.e.: build, operate, maintain and repair) and timing remains unknown at this time. We expect [AT&T] will move very quickly to expedite the network build, beginning in less than nine months, and take up to 12 months to build. This expedited build is meaningful to the towers, particularly CCI, AMT, SBAC (in that order).”
Wells Fargo also believes that Dycom Industries will benefit from AT&T’s win. The carrier is Dycom’s largest customer, plus Dycom purchase the wireless assets of Goodman Networks last summer.
The Board of the First Responder Network Authority (FirstNet) gave the go-ahead earlier this week to name the winner at a special meeting for the procurement process. FirstNet Chair Sue Swenson called the move “a significant milestone” for the public safety community, forming an “innovative public-private partnership” to deploy the network. Prior to the special meeting, the FirstNet Board completed its review of the acquisition approach and the request for proposal (RFP) process to identify a partner to build, operate, and maintain the network.
The procurement contract was originally supposed to be awarded on Nov. 1, 2016, but that deadline was missed. Then, Rivada Mercury Networks took FirstNet to court, claiming that it was wrongfully excluded from the procurement process. Recently, FirstNet worked with the U.S. Department of Justice to successfully resolve that protest action regarding the acquisition process, opening the door for the contract award.
The commencement of the FirstNet build is good news for tower owners that count AT&T as a tenant (Crown Castle International is one). MoffettNathanson forecasts that AT&T, which has cut back in recent years, will move forward with deployment on its spectrum holdings in the AWS-3 and WCS bands in conjunction with the FirstNet build to reduce the costs.
“The tight build timeframe associated with FirstNet – 60 percent coverage within two years, 80 percent within three years, and so on – all but forces AT&T to utilize existing tower infrastructure and limits its negotiating leverage since it can’t afford to wait (the economics of leveraging its existing network also means existing sites will get amended),” the firm wrote last fall.
Even as FirstNet celebrates the coming procurement contract, Michael Myers of Advancing Telecom raised some sobering questions in a blog post about whether the public safety network will need a taxpayer bailout at some point. He noted that the AT&T covers only 42 percent of the geographic land mass, while the public safety network will need to be built out to roughly 100 percent of the geography.
Not only will building rural coverage be expensive, but building out metro coverage will be enough to break the budget, according to Myers, who estimated the cost for the network, plus long term operations, will cost in excess of $100 Billion.
“The biggest cost in building out a broadband wireless platform is the power,” Myers wrote in his blog. “Just to retrofit existing towers in the metropolitan areas will suck up most of the money because the commercial standards are driven by 8-hour backup power generation; Public Safety Broadband will be three times that.”
In exchange for building out the network and annual payments totaling at least $5.6 billion over 25 years, FirstNet will allow the winner to use the excess capacity in the network, and collect payments from the public safety agencies. Myers also questioned whether the auction winner can make enough money from the use of the spectrum to make economic sense. As a result, Myers believes taxpayers will need to chip in.
“There isn’t enough revenue to be made that could recapture the investment made, thus somebody will have to pay. I can assure you that AT&T will not pay for a network that will never produce enough revenue to recoup its capital and produce a good stream of revenue,” he wrote.